Investors Polarized On Key Rate Predictions

Investors Polarized On Key Rate Predictions

Will the Bank of Canada raise its key interest rate tomorrow?

Investors haven’t been this divided in their forecasts for Wednesday’s interest rate decision since April 2009, according to a Bloomberg News survey. Of 17 leading investors surveyed, 12 predict that the Bank of Canada will raise its key interest rate to 1.0 percent. The rest believe that governor Mark Carney will keep the rate as-is.

In a CBC News report, a senior economist with TD Bank predicts that Carney will raise the key rate and then leave it alone until the second quarter of 2011.

Another leading economist at CIBC World Markets urged the central bank last week not to raise the rate on September 8 due to slower-than-expected economic growth and inflation in Canada in the second quarter of this year.

The Canadian economy entered 2010 showing signs of a robust rebound from the recession – spurring Carney to introduce incremental rate hikes – and many consumers to rush into the real estate market for fear of rising mortgage rates. Economic growth indicators have since fallen flat. As well, the United States government is grappling for a life preserver in what is coined a ‘double-dip’ recession in that country.

With no impetus on central banks in Canada or the U.S. to raise key rates anytime soon, mortgage lending rates are likely to remain at historic lows into 2011.